UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission File Number: 001-40047

 

Talis Biomedical Corporation

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

(State or other jurisdiction of

incorporation or organization)

 

 

46-3122255

(I.R.S. Employer

Identification No.)

230 Constitution Drive

Menlo Park, California 94025

 

94025

(Address of principal executive officers)

 

(Zip Code)

Registrant’s telephone number, including area code:

 

(650) 433-3000

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

 

TLIS

 

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒    No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ☐    No  

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes  ☒    No  

As of May 6, 2021, there were 55,501,255 shares of the Registrant’s common stock and preferred stock outstanding, consisting of 25,637,581 shares of common stock and 29,863,674 shares of Series 1 convertible preferred stock, which is a voting common stock equivalent, subject to certain limitations.

 

 


 

Table of Contents

 

 

 

Page

 

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

1

 

Summary of Risk Factors

2

PART I.

FINANCIAL INFORMATION

3

Item 1.

Financial Statements

3

 

Condensed Balance Sheets at March 31, 2021 (unaudited) and December 31, 2020

3

 

Condensed Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2021 and 2020 (unaudited)

4

 

Condensed Statements of Convertible Preferred Stock and Stockholders’ Equity (deficit) for the Three Months Ended March 31, 2021 and 2020 (unaudited)

5

 

Condensed Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 (unaudited)

6

 

Notes to Condensed Financial Statements (unaudited)

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

25

PART II.

OTHER INFORMATION

27

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

79

Item 3.

Defaults Upon Senior Securities

80

Item 4.

Mine Safety Disclosures

80

Item 5.

Other Information

80

Item 6.

Exhibits

81

Signatures

82


 

 

i


 

Special note regarding forward-looking statements

This Quarterly Report on Form 10-Q (this Quarterly Report) contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Risk factors,” and “Management’s discussion and analysis of financial condition and results of operations.” These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

 

our expectations regarding our revenue, expenses and other operating results;

 

the timing or outcome of any of our domestic and international regulatory submissions;

 

our expectations of the reliability, accuracy and performance of our products and services, as well as expectations of the benefits to patients, clinicians and providers of our products and services;

 

future investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements, future revenues, expenses, reimbursement rates and needs for additional financing;

 

impact from future regulatory, judicial, and legislative changes or developments in the United States and foreign countries;

 

our ability to establish a sales force and acquire customers;

 

our expectations regarding our sales models;

 

the costs and success of our marketing efforts, and our ability to promote our brand;

 

our ability to increase demand for our products and services, obtain favorable coverage and reimbursement determinations from third-party payers and expand geographically;

 

our efforts to successfully develop and commercialize our products and services, including our ability to successfully conduct clinical trials;

 

our ability to successfully develop additional revenue opportunities and expand our product and service offerings, including our recently launched offerings;

 

the performance of our third-party suppliers and manufacturers;

 

our ability to effectively manage our growth, including our ability to retain and recruit personnel, and maintain our culture;

 

our ability to compete effectively with existing competitors and new market entrants;

 

the impact on our business of economic or political events or trends;

 

the size and growth potential of the markets for our products and services, and our ability to serve those markets; and

 

the rate and degree of market acceptance of our products and services.

In some cases, you can identify these statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms, and similar expressions that convey uncertainty of future events or outcomes. These forward-looking statements reflect our management’s beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this Quarterly Report and are subject to risks and uncertainties. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. We discuss many of the risks associated with the forward-looking statements in this Quarterly Report in greater detail under the heading “Risk factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward-looking statements. You should carefully read this Quarterly Report and the documents that we reference in this Quarterly Report and have filed as exhibits to the registration statement, of which this Quarterly Report is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this Quarterly Report by these cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, whether as a result of new information, future events or otherwise.

1


Summary of Risk Factors

 

Below is a summary of material factors that make an investment in our common stock speculative or risky. Importantly, this summary does not address all of the risks and uncertainties that we face. Additional discussion of the risks and uncertainties summarized in this risk factor summary, as well as other risks and uncertainties that we face, can be found under “Risk Factors” in Part II, Item 1A of this Quarterly Report. The below summary is qualified in its entirety by that more complete discussion of such risks and uncertainties. You should carefully consider the risks and uncertainties described under “Risk Factors” in Part II, Item 1A of this Quarterly Report as part of your evaluation of an investment in our common stock.

 

There can be no assurance that the COVID-19 test we are developing for the detection of the SARS-CoV-2 virus will be granted an Emergency Use Authorization (EUA) by the U.S. Food and Drug Administration (FDA). If no EUA is granted or, once granted, it is revoked or the emergency declaration is terminated, we will be unable to sell this product in the near future and will be required to pursue 510(k) clearance or other marketing authorization, which would likely be a lengthy and expensive process.

 

We may not be able to obtain marketing authorization for our Talis One system or for any test.

 

We contract with a significant number of third parties for the manufacturing and supply of products, which supply may become limited or interrupted or may not be of satisfactory quality and quantity.

 

We have no products approved for commercial sale. We have no or limited experience in developing, marketing and commercializing diagnostic platforms and tests, and we are continuing to evaluate the sales model for the Talis One system which may make it difficult to evaluate the success of our business and to assess our future viability.

 

The COVID-19 pandemic could materially adversely affect our business, financial condition and results of operations.

 

If our products do not perform as expected, including due to errors, defects or reliability issues, our reputation and market acceptance of our products could be harmed, and our operating results, reputation and business will suffer.

 

We may be unable to manage our growth effectively, which could make it difficult to execute our business strategy.

 

We may rely on a small number of customers for a significant portion of our revenue, which may materially adversely affect our financial condition and results of operations.

 

Our commercial success could be compromised if our customers do not receive coverage and adequate reimbursement for our products, if approved.

 

Modifications to our marketed products may require new EUAs, 510(k) clearances, pre-market approvals, or other marketing authorizations, or may require us to cease marketing or recall the modified products until clearances, approvals or other marketing authorizations are obtained. If we are not able to obtain, maintain, defend or enforce patent and other intellectual property protection for products, or if the scope of the patent and other intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize products and technology similar or identical to ours, which could have a material adverse effect on our competitive position, business, financial conditions, results of operations and prospects.

 

Some of our intellectual property has been discovered through government funded programs and thus may be subject to federal regulations such as “march-in” rights, certain reporting requirements and a preference for U.S.-based companies, and compliance with such regulations may limit our exclusive rights and our ability to contract with non-U.S. manufacturers.

 

We have incurred significant losses since our inception and we anticipate that we will continue to incur losses for the foreseeable future, which could harm our future business prospects.

 

We may need to raise additional capital to fund our existing operations, further develop our diagnostic platform, commercialize new products and expand our operations.

 

2


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Talis Biomedical Corporation

Condensed Balance Sheets

(in thousands, except for shares and par value)

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

348,012

 

 

$

138,483

 

Restricted cash

 

 

34,650

 

 

 

34,650

 

Grants receivable

 

 

 

 

 

238

 

Unbilled grants receivable

 

 

 

 

 

233

 

Prepaid research and development expenses

 

 

5,212

 

 

 

12,014

 

Prepaid expenses and other current assets

 

 

3,448

 

 

 

3,106

 

Total current assets

 

 

391,322

 

 

 

188,724

 

Property and equipment, net

 

 

9,712

 

 

 

9,114

 

Operating lease right-of-use-assets

 

 

400

 

 

 

567

 

Other long term assets

 

 

1,748

 

 

 

 

Total assets

 

$

403,182

 

 

$

198,405

 

Liabilities and Stockholders’ Equity (Deficit)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

10,826

 

 

$

4,906

 

Accrued compensation

 

 

4,835

 

 

 

2,738

 

Accrued expenses and other current liabilities

 

 

30,697

 

 

 

7,694

 

Current operating lease liabilities

 

 

491

 

 

 

693

 

Total current liabilities

 

 

46,849

 

 

 

16,031

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

Convertible preferred stock, $0.0001 par value—no shares authorized as of March 31, 2021 and 229,296,908 shares authorized as of December 31, 2020; no shares issued and outstanding as of March 31, 2021 and 53,509,351 shares issued and outstanding as of December 31, 2020; no aggregate liquidation preference of as of March 31, 2021 and $475,617 as of December 31, 2020

 

 

 

 

 

290,945

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Series 1 convertible preferred stock, $0.0001 par value—60,000,000 and 57,324,227 shares authorized as of March 31, 2021 and December 31, 2020, respectively; 29,863,674 and no Series 1 convertible preferred stock issued and outstanding as of March 31, 2021 and December 31, 2020, respectively; aggregate liquidation preference of $3 as of March 31, 2021 and none as of December 31, 2020

 

 

3

 

 

 

 

Common stock, $0.0001 par value; 200,000,000 and 230,000,000 shares authorized at

March 31, 2021 and December 31, 2020, respectively; 25,637,581 and 2,126,254 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

 

 

2

 

 

 

 

Additional paid-in capital

 

 

589,726

 

 

 

64,335

 

Accumulated deficit

 

 

(233,398

)

 

 

(172,906

)

Total stockholders’ equity (deficit)

 

 

356,333

 

 

 

(108,571

)

Total liabilities, convertible preferred stock and stockholders’ equity (deficit)

 

$

403,182

 

 

$

198,405

 

 

 

See accompanying notes to the unaudited condensed financial statements

3


Talis Biomedical Corporation

Condensed Statements of operations and comprehensive loss (Unaudited)

(in thousands, except for share and per share amounts)

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Grant revenue

 

$

7,000

 

 

$

399

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

60,193

 

 

 

5,714

 

Selling, general and administrative

 

 

7,327

 

 

 

2,080

 

Total operating expenses

 

 

67,520

 

 

 

7,794

 

Loss from operations

 

 

(60,520

)

 

 

(7,395

)

Other income:

 

 

 

 

 

 

 

 

Other income, net

 

 

28

 

 

 

21

 

Total other income, net:

 

 

28

 

 

 

21

 

Net loss and comprehensive loss

 

$

(60,492

)

 

$

(7,374

)

Net loss per share, basic and diluted

 

$

(4.61

)

 

$

(3.49

)

Weighted average shares used in the calculation of net loss per share, basic and diluted

 

 

13,110,713

 

 

 

2,115,770

 

 

See accompanying notes to the unaudited condensed financial statements

4


Talis Biomedical Corporation

Condensed Statements of convertible preferred stock and stockholders’ equity (deficit) (Unaudited)

(in thousands, except for share amounts)

 

 

 

Convertible

Preferred Stock

 

 

 

Series 1 Convertible

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid in

 

 

Accumulated

 

 

Stockholders’

Equity

 

 

 

Shares

 

 

Value

 

 

 

Shares

 

 

Value

 

 

Shares

 

 

Value

 

 

Capital

 

 

Deficit

 

 

(Deficit)

 

Balance at December 31, 2020

 

 

53,509,351

 

 

$

290,945

 

 

 

 

 

 

 

 

 

 

2,126,254

 

 

$

 

 

$

64,335

 

 

$

(172,906

)

 

$

(108,571

)

Issuance of Common Stock upon exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

85,895

 

 

 

 

 

 

131

 

 

 

 

 

 

131

 

Issuance of Common Stock upon initial public offering, net of issuance costs of $21,349

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,870,000

 

 

 

2

 

 

 

232,546

 

 

 

 

 

 

232,548

 

Conversion of convertible preferred stock into common stock and Series 1 convertible preferred stock upon initial public offering

 

 

(53,509,351

)

 

 

(290,945

)

 

 

 

29,863,674

 

 

 

3

 

 

 

7,555,432

 

 

 

 

 

 

290,942

 

 

 

 

 

 

290,945

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,772

 

 

 

 

 

 

1,772

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(60,492

)

 

 

(60,492

)

Balance at March 31, 2021

 

 

 

 

$

 

 

 

 

29,863,674

 

 

$

3

 

 

 

25,637,581

 

 

$

2

 

 

$

589,726

 

 

$

(233,398

)

 

$

356,333

 

 

 

 

Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid in

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Value

 

 

 

Shares

 

 

Value

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balance at December 31, 2019

 

 

37,871,430

 

 

$

42,755

 

 

 

 

2,115,583

 

 

$

 

 

$

60,636

 

 

$

(81,776

)

 

$

(21,140

)

Issuance of Common Stock upon exercise of stock options

 

 

 

 

 

 

 

 

 

483

 

 

 

 

 

 

5

 

 

 

 

 

 

5

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

681

 

 

 

 

 

 

681

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,374

)

 

 

(7,374

)

Balance at March 31, 2020

 

 

37,871,430

 

 

$

42,755

 

 

 

 

2,116,066

 

 

$

 

 

$

61,322

 

 

$

(89,150

)

 

$

(27,828

)

 

See accompanying notes to the unaudited condensed financial statements

 

5


 

Talis Biomedical Corporation

Condensed Statements of cash flows (Unaudited)

(in thousands)

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(60,492

)

 

$

(7,374

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Stock-based compensation

 

 

1,772

 

 

 

681

 

Depreciation and amortization

 

 

216

 

 

 

185

 

Non-cash lease expense

 

 

143

 

 

 

138

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Unbilled grants receivable

 

 

233

 

 

 

(328

)

Grants receivable

 

 

238

 

 

 

1,735

 

Prepaid expenses and other current assets

 

 

(342

)

 

 

(29

)

Prepaid research and development

 

 

6,803

 

 

 

(99

)

Other long term assets

 

 

(981

)

 

 

 

Accounts payable

 

 

5,821

 

 

 

(160

)

Accrued expenses and other liabilities

 

 

24,283

 

 

 

(138

)

Lease liabilities

 

 

(179

)

 

 

(193

)

Net cash used in operating activities

 

$

(22,485

)

 

$

(5,582

)

Investing activities

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(698

)

 

 

(119

)

Net cash used in investing activities

 

$

(698

)

 

$

(119

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from initial public offering, net of issuance costs

 

 

233,348

 

 

 

 

Proceeds from stock option exercises

 

 

131

 

 

 

5

 

Net cash provided by financing activities

 

$

233,479

 

 

$

5

 

Net increase in cash and restricted cash

 

 

210,296

 

 

 

(5,696

)

Cash and restricted cash at beginning of period

 

 

173,133

 

 

 

21,604

 

Cash and restricted cash at end of period

 

$

383,429

 

 

$

15,908

 

Supplemental disclosure of noncash investing and financing activities

 

 

 

 

 

 

 

 

Property and equipment purchases included in accounts payable and accrued expenses and other liabilities

 

$

117

 

 

$

73

 

Deferred initial public offering costs included in accrued expenses and other liabilities

 

$

802

 

 

$

 

 

The following table provides a reconciliation of the cash and restricted cash balances as of each of the periods shown above:

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Cash

 

$

348,012

 

 

$

15,908

 

Restricted cash

 

 

34,650

 

 

 

 

Other long term assets – restricted cash

 

 

767

 

 

 

 

Total cash and restricted cash

 

$

383,429

 

 

$

15,908

 

 

See accompanying notes to the unaudited condensed financial statements

 

 

6


 

 

Talis Biomedical Corporation

Notes to Condensed Financial Statements (Unaudited)

1. Organization and nature of business

Talis Biomedical Corporation (the Company) is a molecular diagnostic company focused on transforming diagnostic testing through innovative molecular diagnostic products that enable customers to deploy accurate, reliable, low cost and rapid point-of-care testing for infectious diseases and other conditions. The Company was incorporated in 2013 under the general laws of the State of Delaware and is based in Menlo Park, California (CA) and Chicago, Illinois (IL).

Initial Public Offering and Reverse Stock Split

In February 2021, the Company amended and restated its amended and restated certificate of incorporation to effect a 1-for-1.43 reverse split (2021 Reverse Split) of shares of the Company’s common stock. The par value and authorized shares of common stock were not adjusted as a result of the 2021 Reverse Split. Shares of the Company’s convertible preferred stock were not subject to the 2021 Reverse Split but have been converted at the same rate as the reverse split. All of the share and per share information included in the accompanying condensed financial statements has been retroactively adjusted to reflect the 2021 Reverse Split.

In February 2021, the Company completed an initial public offering (IPO) in which the Company issued and sold 13,800,000 shares of common stock at a public offering price of $16.00 per share, with an additional 2,070,000 shares sold pursuant to the underwriters’ full exercise of their option to purchase additional shares. The aggregate proceeds received by the Company from the IPO was $232.5 million after deducting underwriting discounts, commissions and offering expenses of approximately $21.3 million. Upon the closing of the IPO, convertible preferred stock held by Baker Bros. Advisors LP, a related party, and its affiliates, were converted into 29,863,674 Series 1 convertible preferred stock. The remaining outstanding convertible preferred stock were converted into 7,555,432 shares of common stock.

Liquidity

The Company has incurred significant losses and negative cash flows since inception, including net losses of $60.5 million for the three months ended March 31, 2021. As of March 31, 2021, the Company had unrestricted cash of $348.0 million and $35.4 million of restricted cash. Management expects to continue to incur additional substantial losses in the foreseeable future as a result of the Company’s research and development activities. The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding to continue to operationalize the Company’s current technology and to advance the development of its products. The Company expects its existing unrestricted cash as of March 31, 2021 will be sufficient to fund its operations through at least one year from the date these condensed financial statements are issued. The Company expects to finance its future operations with its existing restricted and unrestricted cash and through strategic financing opportunities that could include, but are not limited to, future offerings of its equity, grant agreements, or the incurrence of debt. However, there is no guarantee that any of these strategic or financing opportunities will be executed or realized on favorable terms, if at all, and some could be dilutive to existing stockholders. The Company’s ability to raise additional capital through either the issuance of equity or debt, is dependent on a number of factors including, but not limited to, the demand for the Company, which itself is subject to a number of development and business risks and uncertainties, as well as the uncertainty that the Company would be able to raise such additional capital at a price or on terms that are favorable to the Company.

2. Summary of significant accounting policies

Basis of presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial reporting.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  These unaudited condensed financial statements include all adjustments necessary to fairly state the financial position and the results of our operations and cash flows for interim periods in accordance with GAAP. All such adjustments are of a normal, recurring nature. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or for any future period.

The condensed balance sheet presented as of December 31, 2020, has been derived from the audited financial statements as of that date. The condensed financial statements and notes are presented do not contain all information that is included in the annual financial statements and notes thereto of the Company. The condensed financial statements and notes included in this report should be read in conjunction with the financial statements and notes included in the Company’s 2020 Annual Report on Form 10-K filed with the SEC.

 

7


 

 

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates form the basis for judgments the Company makes about the carrying values of assets and liabilities that are not readily apparent from other sources. The Company bases its estimates and judgments on historical experience and on various other assumptions that the Company believes are reasonable under the circumstances. These estimates are based on management’s knowledge about current events and expectations about actions the Company may undertake in the future. Significant estimates include, but are not limited to, recovery of long-lived assets, stock-based compensation expense, research and development accruals, the measurement of right-of-use assets and lease liabilities, uncertain tax positions, and the fair value of common stock prior to the Company’s IPO. Actual results could vary from the amounts derived from management’s estimates and assumptions.

Reclassifications

The accompanying condensed balance sheet as of December 31, 2020 reflects the Company’s reclassification of accrued compensation out of accrued expenses and other liabilities to conform with current year presentation.

Deferred initial public offering costs

The Company capitalizes certain direct incremental legal, consulting, banking and accounting fees primarily relating to the Company’s IPO. After consummation of the IPO, which closed on February 17, 2021, these costs were recorded in stockholders' equity as a reduction of additional paid-in capital. As of December 31, 2020, the Company recorded deferred offering costs of $2.4 million recorded within other current assets on the balance sheet.

Restricted Cash

Restricted cash consists of cash that serves as collateral for the Company’s standby letters of credit (see Note 5). Any cash that is legally restricted from use is classified as restricted cash. If the purpose of restricted cash relates to acquiring a long-term asset, liquidating a long-term liability, or is otherwise unavailable for a period longer than one year from the balance sheet date, the restricted cash is classified as a long term asset, otherwise, restricted cash is included in current assets in the balance sheet.

Concentration of credit risk and other risks and uncertainties

Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash, restricted cash, and grant receivables. The Company’s cash is deposited in accounts at large financial institutions. The Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the cash is held and government grant funded nature of the Company’s grant receivables.

The Company is subject to risks common to companies in the diagnostics industry including, but not limited to, uncertainties related to commercialization of products, regulatory approvals, and protection of intellectual property rights.

In December 2019, a novel strain of coronavirus, which causes the disease known as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 coronavirus has spread globally. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The COVID-19 pandemic has and may continue to impact the Company’s third-party manufacturers and suppliers, which could disrupt its supply chain or the availability or cost of materials. The effects of the public health directives and the Company’s work-from-home policies may negatively impact productivity, disrupt its business and delay clinical programs and timelines and future clinical trials, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on the Company’s ability to conduct business in the ordinary course. These and similar, and perhaps more severe, disruptions in the Company’s operations could negatively impact business, results of operations and financial condition, including its ability to obtain financing. To date, the Company has not incurred impairment losses in the carrying values of its assets as a result of the pandemic and is not aware of any specific related event or circumstance that would require the Company to revise its estimates reflected in these condensed financial statements.

The Company has developed its COVID-19 test in direct response to the pandemic and has been awarded a contract from the NIH for Phase 2 of its Rapid Acceleration of Diagnostics (RADx) initiative. These developments may mitigate risks that could affect the Company’s ability to complete its clinical trials in a timely manner, delay the initiation and/or enrollment of any future clinical trials, disrupt regulatory activities or have other adverse effects on its business and operations.

The Company cannot be certain what the overall impact of the COVID-19 pandemic will be on its business and prospects. The extent to which the COVID-19 pandemic will further directly or indirectly impact its business, results of operations, financial condition and liquidity, including planned and future clinical trials and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19, the actions taken to contain or treat it, and the duration and intensity of the related effects. In addition, the Company could see some limitations on employee resources

8


 

that would otherwise be focused on its operation, including but not limited to sickness of employees or their families, the desire of employees to avoid contact with large groups of people, and increased reliance on working from home. If the financial markets and/or the overall economy are impacted for an extended period, the Company’s business, financial condition, results of operations and prospects may be adversely affected.

Income Taxes

On March 11, 2021, the President signed the American Rescue Plan Act of 2021 (ARPA) into law.  ARPA includes several provisions, such as measures that extend and expand the employee retention credit, previously enacted under the Coronavirus Aid, Relief and Economic Security Act (CARES Act), through December 31, 2021. The enactment of ARPA did not have a material impact on our condensed financial statements.

Research and development costs

Research and development costs are expensed as incurred. Research and development expenses include certain payroll and personnel expenses, laboratory supplies, consulting costs, external contract research and development expenses, allocated overhead and facility occupancy costs. Costs to develop the Company’s technologies, including software, are recorded as research and development expense except for costs that meet the criteria to be capitalized as internal-use software costs.

The Company does not capitalize pre-launch inventory costs until future commercialization is considered probable and the future economic benefit is expected to be realized. Capitalizing pre-launch inventory costs will not occur prior to obtaining an Emergency Use Authorization (EUA) or other U.S Food and Drug Administration (FDA) marketing authorization unless the regulatory review process has progressed to a point that objective and persuasive evidence of regulatory approval is sufficiently probable, and future economic benefit can be asserted. The Company records such costs as research and development expenses, or if used in marketing evaluations records such costs as selling, general and administrative expenses.

In 2020, the Company began developing production lines to automate the production of its Talis One cartridges for the COVID-19 assay with the intention to scale-up its manufacturing capabilities to meet the high demand expected in response to the COVID-19 pandemic. Approximately $69.5 million of the high capacity production equipment acquired as part of the Company’s effort to scale-up its manufacturing capacity, is highly specialized for the manufacturing of the Company’s Talis One cartridges and was determined not to have an alternative future use, of which $28.6 million had been incurred in the three months ending March 31, 2021. All materials, equipment, and external consulting costs associated with developing aspects of the production line that do not have an alternative future use are expensed as research and development costs until regulatory approval is obtained. Materials, equipment, and external consulting costs associated with developing aspects of the production line that are deemed to have an alternative future use are capitalized as property and equipment, assessed for impairment and depreciated over their related useful lives. These research and development costs, including expenditures for property and equipment with no alternative future use, are classified as operating cash outflows within the Company’s statements of cash flows.

The Company makes estimates of its accrued expenses as of each balance sheet date in its financial statements based on facts and circumstances at that time. The Company periodically confirms the accuracy of its estimates with the service providers and makes adjustments if necessary. Although the Company does not expect its estimates to be materially different from amounts actually incurred, the Company’s understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to the Company’s prior estimates of accrued research and development expenses.

Convertible preferred stock

The Company records convertible preferred stock at fair value on the dates of issuance, net of issuance costs. The Company has classified its historical convertible preferred stock, which are redeemable, as temporary equity in the accompanying balance sheets due to terms that allow for redemption of the shares into the Company’s common stock. The Company has classified Series 1 convertible preferred stock and Series 2 non-voting convertible preferred stock as permanent equity in the accompanying condensed balance sheets, as they meet the criteria for permanent equity classification and the liquidation value is de minimis. The Company also evaluates the features of its convertible preferred stock to determine if the features require bifurcation from the underlying shares by evaluating if they are clearly and closely related to the underlying shares and if they do, or do not, meet the definition of a derivative.

Net loss per share

Basic net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the period, without consideration of potential dilutive securities. The convertible preferred stock are participating securities but because they do not have the obligation to share in the loss of the Company, are excluded from the calculation of basic earnings per share. Stock options, convertible preferred stock, and shares estimated to be purchased under the Company’s employee stock purchase plan (ESPP) are considered potentially dilutive common stock. The Company computes diluted net loss per share after giving

9


 

consideration to all potentially dilutive common stock outstanding during the period, determined using the treasury-stock and if-converted methods, except where the effect of including such securities would be antidilutive.

For the period ended March 31, 2021 and December 31, 2020, the Company reported a net loss. The potentially dilutive common stock would have been anti-dilutive and therefore basic and diluted loss per share attributable to common stockholders were the same.

Comprehensive loss

Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company did not have any other comprehensive income or loss for either period presented, and therefore comprehensive loss was the same as the Company’s net loss.

New Accounting Pronouncements

Recently adopted accounting standards

In August 2020, the FASB issued Accounting Standards Update No. 2020-06 (ASU 2020-06) Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). ASU 2020-06 removes certain bifurcation models for convertible debt instruments and convertible preferred stock. ASU 2020-06 eliminates certain models that require separate accounting for embedded conversion features, in certain cases. In addition, the amendments expand disclosure requirements for convertible instruments and simplify areas of the guidance for diluted earnings-per-share calculations that are impacted by the amendments. For public business entities, the guidance is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The guidance is to be applied using either a full retrospective or modified retrospective method. The Company early adopted ASU 2020-06 on January 1, 2021, with no impact on its financial position, results of operations or cash flows.

Accounting standards issued but not yet adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (ASU 2016-13) to require the measurement of expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable forecasts. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the Jumpstart Our Business Startups Act of 2021 (JOBS Act), and assuming the Company continues to be considered an emerging growth company, ASU 2016-13 will be effective for the Company on January 1, 2023. The Company has not yet determined the potential effects of ASU 2016-13 on its financial statements and disclosures.

3. Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Accrued research and development costs

 

$

29,002

 

 

$

6,360

 

Professional fees

 

 

831

 

 

 

608

 

Other liabilities

 

 

864

 

 

 

726

 

 

 

$

30,697

 

 

$

7,694

 

 

4. Grant revenue and receivables

NIH Rapid Acceleration of Diagnostics - Advanced Technology Platforms (RADx) Initiative contracts

In July 2020, the Company was awarded a $0.4 million subaward grant from the University of Massachusetts Medical School for Phase 1 of the NIH’s RADx initiative and a $25.4 million contract from the NIH directly for Phase 2 of the RADx initiative.

The NIH contract for Phase 2 of the RADx initiative is subject to meeting certain milestones and is comprised of five stages. The terms and milestone conditions of the first two stages, for consideration of up to $10.1 million, was agreed to in July 2020 while the milestone conditions and terms of the final three stages, for consideration of up to $15.3 million, was agreed to in December 2020. The Phase 2 RADx contract has a performance period of one year beginning July 2020 and contains key deliverables and milestones that directly support the upgrade and addition of new manufacturing lines which will support the Company’s expansion of its manufacturing capacity to produce and distribute its COVID-19 assay cartridge. If the NIH contract is terminated by the NIH for cause upon the Company’s failure to perform as specified in the NIH contract, the Company would be required to repay the NIH

10


 

15.0% of the amounts previously received as liquidating damages, in place of any actual damages. Such repayment would not be required if a delay in delivery or performance was beyond the Company’s control.

During the three months ended March 31, 2021, the Company recognized as revenue and received $7.0 million in relation to the RADx initiative. The Company received $1.2 million relating to completing the second stage of the contract and $5.8 million relating to completing the third stage of the contract during the three months ended March 31, 2021. The remaining $9.5 million available under the RADx contract is contingent upon the Company meeting agreed-upon contractual milestones. There were no unbilled receivables recorded for this contract as of March 31, 2021 or December 31, 2020.

During the three months ended March 31, 2020, the Company recognized $0.2 million of grant revenue related to efforts incurred under each of its NIH and CARB-X grants.

5. Commitments and contingencies

Operating leases    

In January 2021 the Company entered a new operating lease for laboratory and office space in Chicago, IL. As of March 31, 2021, the Company did not have access to the space, concluded that the leasehold improvements were lessor owned and determined that the lease had not yet commenced for accounting purposes. The lease will continue for an initial term of 11 years, with options to extend the term for two successive five-year periods after the initial expiration date. The Company’s minimum commitment under the new lease is approximately $1.7 million annually with fixed escalations of 2.5% per annum.

In January 2021, the Company entered a new operating lease for laboratory and office space in Redwood City, CA. As of March 31, 2021, the Company did not have access to the space, concluded that the leasehold improvements were lessor owned and determined that the lease had not yet commenced for accounting purposes. The lease will continue for an initial term of 10.5 years, with options to extend the term for two successive five-year periods after the initial expiration date. The Company’s minimum commitment under the new lease is approximately $2.6 million annually with fixed escalations of 3.0% per annum. The Company has included $1.0 million of security deposit to secure the lease within other long term assets on the condensed balance sheet.    

 

Standby letter of credit

Between June 2020 and August 2020, the Company executed and amended a $33.0 million standby letter of credit (LOC) with JPMorgan Chase (JPMC) as terms of collateral that were required by one of the Company’s contract manufacturing organizations. The Company is required to maintain a cash balance of $34.7 million as collateral for the LOC for the term of the contract, which is for a period less than one year from the balance sheet date. The collateral for the LOC is classified as restricted cash on the condensed balance sheets.

In conjunction with the Chicago laboratory lease entered into in January 2021, the Company is required to hold an additional LOC in the amount of $0.8 million to secure this lease through its expiration. The Company is required to maintain a cash balance of $0.8 million as collateral for the LOC, which is classified in other long term assets on the condensed balance sheet because it is unavailable for a period longer than one year from the balance sheet date.

Neither LOC had been drawn upon as of March 31, 2021.  

Indemnification agreements

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, customers and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. The Company also provides indemnifications to directors and officers of the Company to the maximum extent permitted under applicable Delaware law. The maximum potential amount of future payments that the Company could be required to make under these indemnification agreements is, in many cases, unlimited. The Company has not incurred any material costs as a result of such indemnifications and is not currently aware of any indemnification claims.

 

11


 

 

Unconditional purchase obligations

In the normal course of business, the Company enters into various firm purchase commitments. As of March 31, 2021, these commitments total approximately $85.5 million in aggregate and are primarily related to the build out of manufacturing capacity of $21.5 million and purchase of certain inventory related items of $64.0 million, all of which are expected to be incurred in 2021.

 

6. Convertible preferred stock and stockholders’ equity (deficit)

Amended and Restated Certificate of Incorporation

Immediately prior to the closing of the Company’s IPO in February 2021, the Company’s Board of Directors approved and the Company filed its Amended and Restated Certificate of Incorporation, which authorized the issuance of up to 170,000,000 of convertible preferred stock with a par value of $0.0001 per share, of which 60,000,000 shares have been designated as Series 1 convertible preferred stock and 60,000,000 shares have been designated Series 2 non-voting convertible preferred stock.

Convertible preferred stock

The Company had an aggregate 53,509,351 shares of convertible preferred stock issued and outstanding as of December 31, 2020. Upon the closing of the IPO, 42,705,056 affiliated convertible preferred stock with a carrying value of $225.4 million were converted into 29,863,674 Series 1 convertible preferred stock. The remaining 10,804,295 outstanding convertible preferred stock were converted into 7,555,432 shares of common stock. As of March 31, 2021, there were no shares of Series 2 non-voting convertible preferred stock outstanding.

The Company’s convertible preferred stock consisted of the following (in thousands, except share amounts):

 

March 31, 2021

 

Preferred

authorized

 

 

Preferred

shares

issued and

outstanding

 

 

Common

shares

issuable upon

conversion

 

Series 1 convertible preferred stock

 

 

60,000,000

 

 

 

29,863,674

 

 

 

29,863,674

 

Series 2 non-voting convertible preferred stock

 

 

60,000,000

 

 

 

 

 

 

 

Undesignated

 

 

50,000,000

 

 

 

 

 

 

 

 

 

 

170,000,000

 

 

 

29,863,674

 

 

 

29,863,674

 

 

December 31, 2020

 

Preferred

authorized

 

 

Preferred

shares

issued and

outstanding

 

 

Carrying

Value

 

 

Liquidation

Preference

 

 

Common

shares

issuable upon

conversion

 

Series C-1 convertible preferred stock

 

 

13,404,197

 

 

 

13,404,197

 

 

 

39,756

 

 

 

105,041

 

 

 

9,373,556

 

Series C-2 convertible preferred stock

 

 

13,404,197

 

 

 

 

 

 

 

 

 

 

 

 

 

Series D-1 convertible preferred stock

 

 

11,809,630

 

 

 

1,437,178

 

 

 

3,561

 

 

 

5,631

 

 

 

1,005,013

 

Series D-2 convertible preferred stock

 

 

11,809,630

 

 

 

10,372,452

 

 

 

24,365

 

 

 

40,641

 

 

 

7,253,461

 

Series E-1 convertible preferred stock

 

 

13,477,088

 

 

 

2,289,899

 

 

 

16,943

 

 

 

24,319

 

 

 

1,601,316

 

Series E-2 convertible preferred stock

 

 

13,477,088

 

 

 

11,187,189

 

 

 

82,766

 

 

 

118,808

 

 

 

7,823,208

 

Series F-1 convertible preferred stock

 

 

18,633,312

 

 

 

4,859,897

 

 

 

38,496

 

 

 

59,420

 

 

 

3,398,514

 

Series F-2 convertible preferred stock

 

 

18,633,312

 

 

 

9,958,539

 

 

 

85,058

 

 

 

121,758

 

 

 

6,964,012

 

Series 1 convertible preferred stock

 

 

57,324,227

 

 

 

 

 

 

 

 

 

 

 

 

 

Series 2 non-voting convertible preferred stock

 

 

57,324,227

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

229,296,908

 

 

 

53,509,351

 

 

$

290,945

 

 

$

475,617

 

 

 

37,419,080

 

The Series 1 convertible preferred stock and Series 2 non-voting convertible preferred stock have various rights, privileges and features. The Company determined that none of the features required bifurcation from the underlying shares, either because they are clearly and closely related to the underlying shares or because they do not meet the definition of a derivative. The rights, preferences, and privileges of the Company’s Series 1 and Series 2 convertible preferred stock are as follows:

Voting

The holders of our Series 1 convertible preferred stock are entitled to one vote per share. Holders of shares of our common stock and Series 1 convertible preferred stock will vote together as a single class on all matters (including the election of directors) submitted to

12


 

a vote of stockholders, subject to the limitations described above. The Series 1 convertible preferred stock does not have cumulative voting rights.

Holders of our Series 2 convertible preferred stock have no voting rights except as required by law or as set forth in our amended and restated certificate of incorporation.

Conversion

The Series 1 convertible preferred stock is convertible, at the election of the holder, into Series 2 convertible preferred stock on a one-for-one basis at any time following the third anniversary of the closing of the IPO. Shares of Series 1 convertible preferred stock automatically convert to common stock on a one-for-one basis at any time at the discretion of the holder, or upon any sale or transfer of such shares of Series 1 convertible preferred stock.

Conversion of the Series 2 convertible preferred stock is prohibited if the holder exceeds a specified threshold of voting security ownership. The Series 2 convertible preferred stock is convertible into common stock on a one-for-one basis, subject to adjustment for events such as stock splits, combinations and the like; provided that such holder shall not be entitled to convert the Series 2 convertible preferred in excess of that number of convertible preferred stock which upon giving effect or immediately prior to such conversion would cause the holder to exceed 4.99% ownership or voting power individually or in aggregate with its affiliated holders. The 4.99% can be increased to up to 19.99% by the holders of such shares with 61 days’ notice to the Company. Shares of Series 2 convertible preferred stock automatically convert to common stock on a one-for-one basis upon any sale or transfer of such shares of Series 2 convertible preferred stock.

 

Dividends

The Series 1 convertible preferred stock and Series 2 non-voting convertible preferred stock have the right to receive dividends first or simultaneously with payment of dividends on common stock.

Liquidation preference

In the event of any liquidation or dissolution of the company, holders of the Series 1 convertible preferred stock and Series 2 non-voting convertible preferred stock are entitled to receive $0.0001 per share prior to the payment of any amount to any holders of our capital stock ranking junior to the Series 1 convertible preferred stock and Series 2 non-voting convertible preferred stock and thereafter shall participate on an as-if-converted-to-common-stock basis.

Protective provisions

Consent of the holders of a majority of the voting rights of the outstanding Series 1 convertible preferred stock and Series 2 non-voting convertible preferred stock is required for any amendment or change of the rights, preferences, privileges, or powers of, or the restrictions provided for the benefit of, the Series 1 convertible preferred stock and Series 2 non-voting convertible preferred stock.

Registration rights

In March 2021, the Company entered into a registration rights agreement (the Registration Rights Agreement) with Baker Brothers Life Sciences, L.P. and 667, L.P. (the Baker Funds), holders of our Series 1 convertible preferred stock and related parties. The obligations of the Company regarding such registration rights include, but are not limited to, file a registration statement with the SEC for the registration of registrable securities, reasonable efforts to cause such registration statement to become effective, keep such registration statement effective for up to 30 days, prepare and file amendments and supplements to such registration statement and the prospectus used in connection with such registration statement, and notify each selling holder, promptly after the Company receives notice thereof, of the time when such registration statement has been declared effective or a supplement to any prospectus forming a part of such registration statement has been filed. The terms of the registration rights provide for the payment of certain expenses related to the registration of the shares, including a capped reimbursement of legal fees of a single special counsel for the holders of the shares, but do not impose any obligations for the Company to pay additional consideration to the holders in case a registration statement is not declared effective. Under the Registration Rights Agreement, the Baker Funds also have the right to one underwritten offering per calendar year, but no more than two underwritten offerings or block trades in any twelve month period, to effect the sale or distribution of their registrable securities, subject to specified exceptions, conditions and limitations. The Registration Rights Agreement also includes customary indemnification obligations in connection with registrations conducted pursuant to the Registration Rights Agreement.

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Common stock

The Company’s February 2021 Amended and Restated Certificate of Incorporation authorized the issuance of up 200,000,000 shares of common stock, each having a par value of $0.0001 and entitled to one vote per share.

In February 2021, the Company issued and sold 15,870,000 shares of the Company’s common stock including 2,070,000 shares pursuant to the full exercise of the underwriter’ option to purchase additional shares, at a public offering price of $16.00 per share, for aggregate net proceeds of $232.5 million after deducting underwriting discounts, commissions and offering expenses. As of March 31, 2021, the Company had 200,000,000 shares of common stock authorized and 25,637,581 shares of common stock issued and outstanding.

The Company has reserved the following shares of common stock for future issuances:

 

 

As of March 31,

 

 

 

2021

 

Shares reserved for conversion of outstanding Series 1 convertible preferred stock

 

 

60,000,000

 

Shares reserved for conversion of outstanding Series 2 non-voting convertible preferred stock

 

 

60,000,000

 

Shares reserved for conversion of outstanding Undesignated convertible preferred stock

 

 

50,000,000

 

Shares reserved for options to purchase Common Stock under the 2013 Equity Incentive Plan

 

 

7,606,062

 

Shares reserved for options to purchase Common Stock under the 2021 Equity Incentive Plan

 

 

433,360

 

Shares reserved for issuance under the 2021 Equity Incentive Plan

 

 

4,801,482

 

Shares reserved for issuance under the 2021 Employee Stock Purchase Plan

 

 

550,000

 

Total

 

 

183,390,904

 

 

7. Stock-based compensation

2013 Equity Incentive Plan

The 2013 Equity Incentive Plan (2013 Plan) provides the Board the discretion to grant stock options and other equity-based awards to employees, directors, and consultants of the Company. The Board administers the 2013 Plan and has discretion to delegate some or all of the administration of the 2013 Plan to a committee or committees or an officer. To date, the Company has only granted Incentive Stock Options (ISOs) and Non-statutory Stock Options (NSOs) to employees, consultants, and directors. Following the completion of the Company’s IPO no additional shares will be granted under the 2013 Plan. However, the 2013 Plan will continue to govern outstanding equity awards granted thereunder. To the extent outstanding options granted under the 2013 Plan are cancelled, forfeited or otherwise terminated without being exercised and would otherwise have been returned to the share reserve under the 2013 Plan, the number of shares underlying such awards will be available for future grant under the 2021 Equity Incentive Plan. As of March 31, 2021, there were 7,606,062 shares of common stock reserved by the Company for options to purchase common stock under the 2013 Plan and no shares of common stock remained available for future grants.

2021 Equity Incentive Plan

In February 2021, the Company’s Board of Directors adopted our 2021 Equity Incentive Plan (2021 Plan), and our stockholders approved our 2021 Plan. Our 2021 Plan is a successor to and continuation of our 2013 Plan. To date, the Company has only granted Incentive Stock Options (ISOs) and Non-statutory Stock Options (NSOs) to employees and directors. Therefore, the below discussion is limited to the terms applicable to ISOs and NSOs (collectively, stock options or options). As of March 31, 2021, there were 5,234,842 shares of common stock reserved by the Company for grant under the 2021 Plan and an aggregate of 4,801,482 shares of common stock remained available for future grants.

2021 Employee Stock Purchase Plan (ESPP)

In February 2021, the Company’s Board of Directors adopted our ESPP, and our stockholders approved our ESPP. The price at which stock is purchased under the ESPP is equal to 85% of the fair market value of the Company's common stock on the first or the last day of the offering period, whichever is lower. Generally, each offering under the ESPP will be for a period of six months as determined by the Company's Board of Directors. Employees may invest up to 15% of their qualifying gross compensation through payroll deductions. In no event may an employee purchase more than 4,750 shares of common stock during any six-month offering period. As of March 31, 2021, there were 550,000 shares of common stock available for issuance under the ESPP and no shares issued under the ESPP. The ESPP is a compensatory plan as defined by the authoritative guidance for stock compensation; therefore, stock-based compensation expense of $0.1 million related to the ESPP has been recorded during the three months ended March 31, 2021.

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Stock option activity

A summary of stock option activity during the three months ended March 31, 2021 is as follows:

 

 

 

Number of

Units

Outstanding

 

 

Weighted

Average

Strike Price

per Unit

 

 

Weighted

Average

Remaining

Contractual

Term

(in years)

 

 

Aggregate

Intrinsic

Value

(in thousands)

 

Outstanding at December 31, 2020

 

 

7,737,095

 

 

$

4.22

 

 

 

9.3

 

 

$

16,374

 

Granted

 

 

433,360

 

 

$

15.48

 

 

 

 

 

 

 

 

 

Exercised

 

 

(85,895

)

 

$

1.50

 

 

 

 

 

 

 

 

 

Forfeited/Expired

 

 

(45,138

)

 

$

3.62

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2021

 

 

8,039,422

 

 

$

4.86

 

 

 

9.1

 

 

$

65,470

 

Exercisable at March 31, 2021

 

 

1,179,385

 

 

$

1.83

 

 

 

8.1

 

 

$

12,998

 

Nonvested at March 31, 2021

 

 

6,860,037

 

 

$

5.38

 

 

 

9.3

 

 

$

52,472

 

As of March 31, 2021, the total unrecognized stock-based compensation related to stock options was $23.5 million, which is expected be recognized over a weighted-average period of approximately 3.1 years.

During 2020, the Chief Executive Officer of the Company received stock options for the purchase of 241,958 shares of common stock that vest upon the first sale by the Company of a regulatory authorized product. As of March 31, 2021, there was $1.4 million of unrecognized compensation expense related to these stock options as the achievement of the performance condition was not yet deemed probable.

Stock-based compensation expense

The following table summarizes the components of stock-based compensation expense recorded in the Company’s statement of operations and comprehensive loss (in thousands):

 

 

Three months ended March 31,

 

 

 

2021

 

 

2020

 

Research and development

 

$

623

 

 

$

274

 

Selling, general and administrative

 

 

1,149

 

 

 

407

 

Total stock-based compensation

 

$

1,772

 

 

$

681

 

 

8. Related-party transactions

Research and development consulting services agreement

The Company has a service agreement with a major stockholder, director and member of its Scientific Advisory Board, under which, the individual is compensated for providing the Company with research and development consulting services. Under the agreement, the Company has made payments of less than $0.1 million for services rendered during each of the three months ended March 31, 2021 and 2020.

Financing activity

During the three months ended March 31, 2021, the company received proceeds of $106.2 million from the issuance of common stock to related parties as part of the Company’s IPO, including the Company’s majority shareholder, Baker Bros. Advisors LP, six officers and two members of the Company’s Board of Directors.

Registration rights

In March 2021, the Company entered into a registration rights agreement (the Registration Rights Agreement) with Baker Brothers Life Sciences, L.P. and 667, L.P. (the Baker Funds), holders of our Series 1 convertible preferred stock and related parties (see Note 6).     

15


 

9. Net loss per share attributable to Common Stockholders

Net loss per share attributable to common stockholders 

The following table sets forth the computation of the basic and diluted net loss per share (in thousands, except for share and per share data):       

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Numerator:

 

 

 

 

 

 

 

 

Net loss - basic and diluted

 

$

(60,492

)

 

$

(7,374

)

Denominator:

 

 

 

 

 

 

 

 

Weighted-average number of shares of common stock outstanding - basic and diluted

 

 

13,110,713

 

 

 

2,115,770

 

Net loss per share - basic and diluted

 

$

(4.61

)

 

$

(3.49

)

 

Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive. The Company’s Series 1 convertible preferred stock are participating securities but because they do not have the obligation to share in the loss of the Company, they are excluded from the calculation of basic net loss per share. Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:

 

 

Three months ended March 31,

 

 

 

2021

 

 

2020

 

Convertible preferred stock

 

 

 

 

 

37,871,430

 

Series 1 convertible preferred stock

 

 

29,863,674

 

 

 

 

Options to purchase Common Stock

 

 

8,039,422

 

 

 

5,019,157

 

Shares estimated to be purchased under 2021 ESPP

 

 

76,770

 

 

 

 

Total

 

 

37,979,866

 

 

 

42,890,587

 

 

 

10. Subsequent events

In December 2015, the Company entered a lease agreement in Menlo Park, CA for laboratory and office space. In April 2021, the Company further extended the term of this operating lease for an additional two months, extending the lease end date to December 31, 2021, with an option to extend the term for one additional month to January 2022.

In April 2021, the Company entered a new operating lease for laboratory and office space in Menlo Park, CA, which commenced on April 1, 2021. The lease will continue for 13 months. The Company’s total obligation over the new lease is approximately $0.4 million.

 

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read together with our condensed financial statements and related notes elsewhere in this Quarterly Report and our audited financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on March 30, 2021 (Annual Report). Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk factors” section of this Quarterly Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read the “Risk factors” section of this Quarterly Report to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled “Special note regarding forward-looking statements.”

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide material information relevant to an assessment of the Company’s financial condition and results of operations, including an evaluation of the amounts and certainty of cash flows from operations and from outside sources. This section is designed to focus on material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be necessarily indicative of future operating results or of future financial condition. This includes descriptions and amounts of matters that have had a material impact on reported operations, as well as matters that are reasonably likely based on management’s assessment to have a material impact on future operations.

Overview

Our primary focus is to transform diagnostic testing through innovative molecular diagnostic products that enable customers to deploy accurate, reliable, low-cost and rapid molecular testing at the point-of-care for infectious diseases and other conditions.

We are developing the Talis One system which leverages expertise across chemistry, biology, engineering and software to create a fully integrated, cloud-enabled and portable molecular diagnostic solution that customers can rapidly deploy when and where needed. The Talis One system incorporates core proprietary technologies into a compact, easy-to-use instrument, that utilizes single use test cartridges and software, including a central cloud database, which are designed to work together to provide levels of testing accuracy equivalent to a central laboratory. We intend to commercialize the Talis One system as an integrated solution comprising single use consumables, an instrument and software. Our commercial strategy will focus on building and expanding an installed base of Talis One instruments and driving utilization of our Talis One assay kits to generate revenue from the purchase of such products. Subject to marketing authorization, our first commercial test will be a rapid point-of-care molecular diagnostic to detect SARS-CoV-2 directly from a patient sample in less than 30 minutes (COVID-19 test). We are also developing assays for the detection of other respiratory infections that could be included as a panel test with our COVID-19 test as well as tests for infections related to women’s health and sexually transmitted infections.

Our products will require marketing authorization from the FDA prior to commercialization. Due to the COVID-19 global pandemic, we are pursuing marketing authorization for our COVID-19 test under an emergency use authorization (EUA) rather than initially pursuing 510(k) clearance or other forms of marketing authorization under the FDA’s standard medical device authorities.

We have invested in automated cartridge manufacturing lines capable of producing one million Talis One cartridges per month. The first of such lines was delivered in the first quarter of 2021, and we expect will scale to meet demand through 2021. These manufacturing lines are located at our contract manufacturers’ sites and are operated by our contract manufacturing partners. We have also ordered 5,000 Talis One instruments from our instrument contract manufacturer.

Since our inception in 2013, we have devoted substantially all our efforts to research and development activities, manufacturing capabilities, raising capital, building our intellectual property portfolio and providing general and administrative support for these operations. We have principally financed our operations through the issuance and sale of shares of our convertible preferred stock to outside investors in private equity financings as well as the issuance of convertible promissory notes and receipts from government grants. Prior to our initial public offering we received $351.5 million from investors in our preferred stock financings and the sale of convertible promissory notes that converted in such financings. Additionally, on February 17, 2021, the Company raised $232.5 million through an initial public offering (IPO) to finance operations going forward.

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We have incurred recurring losses since our inception, including net losses of $60.5 million for the three months ended March 31, 2021 and $7.4 million for the three months ended March 31, 2020. As of March 31, 2021, we had an accumulated deficit of $233.4 million. We expect to continue to generate operating losses and negative operating cash flows for the foreseeable future if and as we:

 

continue the research and development of our platform and assays for additional diseases;

 

initiate clinical trials for, or additional preclinical development of, our platform;

 

further develop and refine the manufacturing processes for our platform;

 

change or add manufacturers or suppliers of materials used for our platform;

 

seek marketing authorizations;

 

seek to identify and validate diagnostic assays for other disease states;

 

obtain, maintain, protect and enforce our intellectual property portfolio;

 

hire and deploy a salesforce;

 

seek to attract and retain new and existing skilled personnel;

 

create additional infrastructure to support our operations as a public company and incur increased legal, accounting, investor relations and other expenses; and

 

experience delays or encounter issues with any of the above.

In addition, if we obtain marketing authorization for our platform, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. As a result, we will need substantial additional funding to support our operating activities. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operating activities through a combination of equity offerings, debt and grant revenue. Adequate funding may not be available to us on acceptable terms, or at all.

If we are unable to obtain funding, we will be forced to delay, reduce or eliminate some or all of our research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations. Although we continue to pursue these plans, there is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all.

As of March 31, 2021, we had unrestricted cash of $348.0 million. We expect that our cash of $348.0 million as of March 31, 2021 will be sufficient to fund our operations through at least the next 12 months from the date our condensed financial statements are issued. We may need substantial additional funding to support our continuing operations and pursue our long-term business plan. We may seek additional funding through the issuance of our common stock, other equity or debt financings, or collaborations or partnerships with other companies. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our research efforts for our assays and development and manufacturing activities. We may not be able to raise additional capital on terms acceptable to us, or at all. Any failure to raise capital as and when needed would compromise our ability to execute on our business plan and may cause us to significantly delay or scale back our operations.

We outsource essentially all of our manufacturing. Design work, prototyping and pilot manufacturing are performed in-house before outsourcing to third party contract manufacturers. Our outsourced production strategy is intended to drive rapid scalability and avoid the high capital outlays and fixed costs related to constructing and operating a manufacturing facility. Certain of our suppliers of components and materials are single source suppliers. To support our anticipated commercial launch, we have invested in automated cartridge manufacturing production lines for our Talis One cartridges. Those assets deemed to have an alternative future use have been capitalized as property and equipment while those assets determined to not have an alternative future use have been expensed. The automated cartridge manufacturing lines are capable of producing one million Talis One cartridges per month, which we expect will scale to meet demand through 2021.

COVID-19 pandemic

Since it was reported to have surfaced in December 2019, a novel strain of coronavirus (COVID-19) has spread across the world and has been declared a pandemic by the World Health Organization. Efforts to contain the spread of COVID-19 have intensified and governments around the world, including in the United States, Europe and Asia, have implemented travel restrictions, social distancing requirements, stay-at-home orders and have delayed the commencement of non-COVID-19-related clinical trials, among other restrictions. As a result, the current COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, patients, communities and business operations, as well as contributing to significant volatility and negative pressure on the U.S. economy and in financial markets.

18


 

We expect that COVID-19 precautions will directly or indirectly impact the timeline for some of our planned clinical trials for our non-COVID-19 related products in development and we are continuing to assess the potential impact of the COVID-19 pandemic on our current and future business and operations, including our expenses and clinical trials, as well as on our industry and the healthcare system.

As a result of the outbreak, many companies have experienced disruptions in their operations and in markets served. We are considered an essential business and therefore the impact to our operations has been limited. To date, we have initiated some and may take additional temporary precautionary measures intended to help ensure our employees’ well-being and minimize business disruption. For the safety of our employees and their families, we have temporarily reduced the presence of our employees in our facilities. Certain of our third-party service providers have also experienced shutdowns or other business disruptions. We are continuing to assess the impact of the COVID-19 pandemic on our current and future business and operations, including our expenses and planned clinical trial and other development timelines, as well as on our industry and the healthcare system.

As a result of the COVID-19 pandemic, or similar pandemics and outbreaks, we have and may in the future experience severe disruptions, including:

 

interruption of or delays in receiving products and supplies from the third parties we rely on to, among other things, manufacture components of our instruments, due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems, which may impair our ability to sell our products and consumables;

 

limitations on our business operations by the local, state, or federal government that could impact our ability to sell or deliver our instruments and consumables;

 

delays in customers’ purchasing decisions and negotiations with customers and potential customers;

 

business disruptions caused by workplace, laboratory and office closures and an increased reliance on employees working from home, travel limitations, cyber security and data accessibility limits, or communication or mass transit disruptions; and

 

limitations on employee resources that would otherwise be focused on the conduct of our activities, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people.

Three vaccines for COVID-19 have been authorized for emergency use by the FDA as of March 2021. There has been a recent drop in COVID-19 testing volumes in the U.S.  While these recent testing trends could be attributable to the vaccines, we are unable to project the longer-term impact of vaccines or new COVID-19 variants on the demand for COVID-19 tests.

Enterprise Resource Planning

During the period ending March 31, 2021, the Company began its implementation of a new enterprise resource planning (ERP) system to provide better information and to support our commercial scale-up.

Components of our results of operations

Grant revenue

To date, all of our revenue has been derived from government grants, which includes an April 2018 subaward grant from Boston University as part of the CARB-X initiative, a May 2018 grant from the NIH to support our advancement of a Diagnostics via Rapid Enrichment, Identification, and Phenotypic Antibiotic Susceptibility Testing of Pathogens from Blood project (NIH grant), a July 2020 subaward grant from the University of Massachusetts Medical School for Phase 1 of the NIH’s Rapid Acceleration of Diagnostics - Advanced Technology Platforms (RADx) initiative and a contract from the NIH directly for Phase 2 of the RADx initiative. Under the RADx, CARB-X and NIH grants there is the possibility of an additional $9.5, $2.8 and $2.2 million, respectively, through April 2023.

These grants are not in scope of the contracts with customers accounting guidance as the government entities and/or government-sponsored entities are not customers under the agreements.

Grant funds received from third parties are recorded as revenue if we are deemed to be the principal participant in the arrangement. If we are not the principal participant, the funds from grants are recorded as a reduction to research and development expense. Reimbursable costs paid prior to being billed are recorded as unbilled grant receivables. Funds received in advance are recorded as deferred grant revenue. Our management has determined that we are the principal participant under our grant agreements, and accordingly, we record amounts earned under these arrangements as grant revenue.

19


 

Operating expenses

Research and development expenses

Research and development expenses consist primarily of internal and external costs incurred for our research activities, the development of our platform, investment in manufacturing capabilities as well as costs incurred pursuant to our government grants and include: